Invoice finance is a form of financing that enables businesses to get their hands on cash owed to them much faster. But how does it support business growth?
What is invoice financing?
Invoice financing is where unpaid invoices are used as security to provide funding from an external source. This often involves a percentage of the due invoice being paid out to the business so that they can use this money to continue to grow and operate as usual. It means that businesses can use this finance to invest in their business or keep cash flow moving instead of waiting on delayed invoices to come back.
Why would a business use invoice financing?
A business would choose to use invoice financing over a loan as the lenders typically look at the amount of money you are owed, rather than the money you have. Therefore, if your business doesn’t have much revenue or has outstanding debts, you’re less likely to be turned down for invoice financing than you would be for a loan from a bank.
The time taken for an invoice to settle can slow down a business’ productions and cause issues further down the line, so having this money ready to hand can keep the processes flowing.
How does it support business growth?
Invoice financing supports business growth by allowing the business to continue operating as usual. Less strain is put on the company to try and source the invoices sooner, meaning that this finance used can go towards the development of the business and its employees. Invoice finance also supports a positive cash flow, growth and development.
Financing can help a business to develop its next steps, find ways to expand and grow within their market, and gives them more leeway to buy additional stock and therefore make more sales.
Would my business qualify for invoice financing?
There are not many requirements for businesses to qualify for invoice financing, but there are some steps that would help you along the way when enquiring.
Firstly, you’d need to be a business that trades with other businesses (B2B) rather than consumers. You’ll also qualify if you are a limited company, and you offer industry-standard credit terms.
Sometimes lenders might require a minimum number of monthly invoices sent to your clients to look into financing these invoices. You’ll also be more likely to qualify if you have an annual turnover of at least £50,000.
